Last summer, Calgary residents faced months of water restrictions when a main line that provided 60 percent of the city’s potable water broke. This underscored the need to upgrade aging physical infrastructure.
But what about Canada’s digital infrastructure? With artificial intelligence (AI) poised to reshape our economy, is this invisible network ready for the challenge? Digital infrastructure is key to productivity, economic growth and tackling the cost-of-living crisis.
Canada’s digital infrastructure is not broken, but needs three critical upgrades: open banking, real-time payments and digital identity. Policy makers have known this for more than a decade. The 2011 Task Force for the Payments System Review and the 2021 Advisory Committee on Open Banking pushed for these reforms. And Canada has lost the lead it once held on digital identity, first introduced in 2012.
Canada now trails more than 70 countries on open banking and real-time payments, and 37 on digital identity. We’ve slipped to eleventh in IMD’s2023 World Digital Competitiveness Ranking, behind, for example, Finland and Taiwan.
Our underperformance stems from weaknesses in technological and regulatory infrastructure. A 2024 McKinsey & Company note titled “Springtime for Canada’s Fintech Industry?” highlights that “Canada ranks among the bottom five developed countries for adopting digital banking, digital B2B services, and fintech solutions.”
The first upgrade is open banking, rebranded as “consumer-driven finance.” Canada has dragged its feet for six years. The finance minister’s Advisory Committee on Open Banking was appointed in 2018, held consultations in 2020 and reported in 2021. An open banking lead, appointed in March 2022, finished his assignment in December 2023 with limited visible progress and no timeline.
A ray of hope emerged in the 2024 Federal Budget when the Financial Consumer Agency of Canada (FCAC) was given responsibility for open banking. However, the budget said the necessary policy work would take three years to complete, implying a start in 2027 — a decade behind the United Kingdom and the European Union.
The United Kingdom’s 2017 legislation has generated an impact, with one in nine British consumers and one in six small businesses reported to be active users of open banking, benefiting from financial decision making, payments and lending apps from 151 fintechs.
Meanwhile, more than four million Canadians are stuck using unsecure screen scraping to share their data, exposing them to security and liability risks. Open banking would require banks to create secure APIs (application programming interfaces) — a set of rules that allow software programs to talk to each other — allowing consumers to share their date and revoke consent safely.
The benefits of consumer-driven finance will depend on how it is implemented. Canada will likely adopt a tiered approach, starting with “read-only” access for large fintechs to basic banking and investment data. However, the true value lies in allowing fintechs to initiate transactions (“read-write”), such as ensuring funds are transferred before an overdraft occurs, thus preventing non-sufficient-funds fees and damage to consumer credit.
The second necessary upgrade is Canada’s payment system, known as real-time rail (RTR). RTR allows payments to clear and settle instantly, 24/7 year-round, with data-rich messaging (defined by the International Standard Organization’s 20022 standard). Data-rich messaging will offer immediate benefits such as instant payment processing, improved liquidity management for businesses and automatic reconciliation. Faster, more secure payments would benefit both consumers and businesses.
While 70 countries have implemented RTR, Canada has faced repeated, unexplained delays. Payments Canada’s 2016 vision for RTR and the 2020 roadmap foresaw a 2022 launch. Leadership turnover, changes in key partners, and repeated delays have pushed this vital upgrade into 2026 or later.
The third upgrade is digital identity. It is an electronic set of credentials that uniquely identifies an individual, allowing for secure authentication and enabling users to access services online. Think of digital ID as an electronic version of a passport or a driver’s licence.
Digital identity is controversial, with critics citing concerns over privacy and security. Supporters argue it can increase security, reduce fraud, empower consumers and foster financial inclusion.
Canada was once a leader, introducing SecureKey Concierge in 2012 to allow Canadians to access government services (such as Canada Revenue Agency) electronically using their existing online banking credentials. The SecureKey Concierge app was renamed Verified.Me in 2019, and then acquired by Interac in 2021. Over this period, many countries, from Estonia to Nigeria, have implemented digital identity systems and passed Canada.
So why is Canada delaying these vital upgrades?
One explanation is the “ruthless oligopoly” of the Big Six banks (RBC, TD Bank, BMO, CIBC and National Bank). They oppose open banking and dominate payments and digital identity through Interac, a for-profit company operating e-transfers and Verified.Me. McKinsey reports that Canada’s banks are the most profitable among developed countries, with the highest banking revenue-to-GDP ratio (7.9 percent in 2023) and return on equity (16 percent in 2022).
Some critics are blunter. In his new book Fleeced: Canadians Versus Their Banks, veteran financial insider Andrew Spence argues the Big Six avoid competition, squeeze their customers, stifle innovation and enrich bank executives and shareholders at the broader economy’s expense.
Our digital infrastructure needs open banking, a real-time payments system and digital identity. Together they form the backbone of a digital infrastructure that will allow Canadians to maximize the benefits of AI-driven innovation. Without these upgrades, Canada risks falling further behind.
